Old models can't explain new economy, speaker says

SAN DIEGO  Seeking to dispel popular myths about the "New Economy," the chief economist at the Federal Reserve Bank of Dallas presented a macroeconomic look at how the microprocessor and related technologies continue to expand productivity, while keeping unemployment at bay.

"Because of the microprocessor, the three largest segments of our economy  high-tech, telecommunications and health  have soared since the 1970s to encompass 33 percent of our economic output," said Michael Cox, speaking at the Gartner Group's Dataquest Semiconductors 2000 conference here. "And there is no reason to see that growth be stilted." While new economic forces are "destroying " 43,000 jobs a month, the same forces are "producing" 136,000 new high-tech jobs every month, Cox said.

Old economic theories fail to explain the new realities of the Information Age, and policy signposts don't mean what they once did, Cox said. "The challenge lies in adjusting our thinking to the new realities," he said.

During the 1990s, Cox said, the 1960s were considered the quintessential good times because the United States enjoyed uninterrupted growth for almost nine years. However, the 1960s don't provide the best corollary for today's economy, he said.

The author of "Myths of Poor and Rich," took the 300 attendees further back into history to make his point: From 1895 to 1915, an era of rapid technological change and economic growth benefited Americans with automobiles, airplanes, telephones, phonographs, radios, elevators, refrigeration and much more. These inventions barely registered as a blip in a GDP dominated by farming, shopkeeping and small-scale production. In time, though, the industries that grew out of them formed the economic backbone of the 20th century  all due to the development of electricity.

Spillover effects

Like electricity, Cox said the microprocessor shook the world by touching off a rapid proliferation of spillover effects. Microprocessors made existing products better, cheaper and more efficient, he said. Starting in the early 1980s, "smart" features helped fine-tune televisions, cut energy use by refrigerators, control cooking in microwave ovens, memorize program schedules in VCRs and generate diagnostic reports for automobiles.

Today, the emerging science of computational biology illustrates how computers can spur progress in unexpected areas. New programs allow researchers to quickly decipher genetic code, speeding up the development of new drugs. The Internet is creating spillovers of its own, making existing industries more efficient and spawning entirely new ones, including Web page design and Internet-based services. Among the most startling statistics in his presentation, Cox said there were just 13 Internet service providers for academicians and researchers in 1970, while today the number is 93 million and counting for a broader population of users.

The entire Library of Congress could move across the nation on fiber-optic networks for just $40 today, Cox said.

Against this background, Cox said it is hard to comprehend how much the world was changing until the 1990s, when the Information Age achieved a kind of critical mass. "It takes time for an invention to spread through the economy, for spillovers to emerge and for new products to reach the marketplace. Now that it's all coming together, America has new reason to stop seeing itself through a lens of downsizing, inequality and falling living standards. In the 1990s, thanks largely to the microprocessor and its spillovers, America witnessed a resurgence of economic growth, new jobs and productivity," he said.

Cox said he expects computational biology (genomics) to continue to push productivity and innovation in the next decade, and nanotechnology in the form of molecular engineering to do the same in the following decade. And he showed no patience for doomsayers, whether about the nation's economy or the current dot-com bloodbath. "That's a natural process," he said. "Remember, there were 262 car companies in the 30s, now there a handful huge ones. I expect the same to happen with the Internet adventurers."

As to the fears and doomsayers who predict downsides to every new development, Cox quipped disparagingly an anonymous quote: " I'm in favor of progress, it's the changes I don't like."

Perhaps the only certainty is one Cox said he teaches future graduates at Southern Methodist University: "You'll have at least five jobs after you graduate, four of which haven't been invented yet."